Mexico Aims To Become The Energy Hub Of Latin America

Mexico could be at the precipice of a region-wide energy revolution, and natural gas is the key. The future of Mexico’s gas sector will be up for debate at the Latin American and Caribbean Gas Conference & Exhibition (LGC) held in Mexico City next month. Major industry players will meet from October 9-11 to discuss, among other topics, the country’s potential to become a major energy hub for Latin America.

The LGC meeting will be held in partnership with non-profit organization International Gas Union, which works to advocate for the incorporation of natural gay as a key component to sustainable energy systems. Also present will be decision-makers from ENGIE, AES, MAN Diesel, MODEC, Shell, TOTAL, Petrobras and other key players in the energy industry.

Orlando Cabrales Segovia, Regional Manager of the International Gas Union described the event as “an opportunity to discuss how to increase demand and take advantage of the gas potential in order to improve the competitiveness of our economies and the air quality of our cities by using natural gas in transportation” after five years of plateaued “production, incorporation of reserves and gas consumption in South America and Central America.”

Five years ago, Mexico received nearly $4 billion USD in investments specifically for the purpose of building and maintaining natural gas pipelines and other gas infrastructure. The country’s National Hydrocarbons Commission (CNH) recently created a public bidding system that offers up 35 exploration and extraction areas.

Mexico is the only Latin American member of the International Energy Agency, and therefore has the status of a first level oil and gas producer, adding to its distinguished position as the most promising nation for natural gas investment in the entire region. Mexico’s unique advantage in its region does not come without significant challenges, however. The nation critically lacks gas storage infrastructure and will need to invest approximately $250 million USD to complete a project that would turn unviable wells into storage facilities. Furthermore, Mexico will need to make significant improvement to their gas transport system and to optimize of the electrical distribution network to integrate renewable energy.

That being said, infrastructure is not the only challenge that the energy industry faces in Mexico, nor the gravest. According to a recent issue brief by Jose I. Rodriguez-Sanchez of the Baker Institute for Public Policy, corruption is swiftly becoming the norm in Mexican society, and the energy industry is a major reason for this unfortunate trend. Mexico ranks among the most corrupt countries in the world across multiple indexes that measure such corruption.

This in no small part thanks to state-owned oil company Petroleos Mexicanos (Pemex), which has supplied a whopping 30 percent of the government’s revenue in the past. Rodriguez-Sanchez wrote that Pemex “signed and paid contracts to private companies that were very problematic in exchange for $11.7 billion from 2003 to 2012. These firms overcharged Pemex for their work, and in some cases, the work was of poor quality or never completed.” Brazil’s Petrobras was central to some of these suspicious contracts and subsequent corruption scandals, but they will notably still be attending LGC in the Mexican capital in October.

If Mexico is successful in its ambitions to become a major natural gas producer and a natural gas hub in Central and Latin America, it will have wide-reaching implications and their neighbors to the north will certainly not be among those rejoicing in Mexican energy independence. As domestic energy production remains low, Mexico is currently one of the biggest importers of natural gas from the United States. In fact, later this year, four new pipelines are expected finally be ready to begin to distribute U.S. natural gas throughout Mexico, and U.S. producers are depending on continued demand.

Incoming Mexican President Andrés Manuel López Obrador, who recently won in a landslide election, ran on a platform that was not only extremely anti-corruption, but heavily in favor of energy independence for his country. He has already pledged to dramatically increase spending on production and infrastructure in Mexico’s energy sector. Although Mexico is making the motions to end their era of dependence on the United States and dramatically decreased energy production, they have a long road ahead. While LGC could be an important first step, it’s just the beginning.

By Haley Zaremba for Oilprice.com